May 29, 2011....Bob Brinker's Latest Bond Market Advice - Fixed Income

Posted May 29, 2011....

BONDS -  STAY SHORT-TERM,  November 21, 2010, Moneytalk,  Bob Brinker said: "My advice has been to stay away from long-term bonds right now. I don't think long-term bonds are a good place to invest right now. Short-term is another story..... "You want to keep the maturities toward the shorter end.....This is not a time when one should be looking to extend their durations and maturities."

 CALIFORNIA GENERAL OBLIGATION BONDS, Moneytalk, November 21, 2010, Bob Brinker said: "I don't think there is any financial stability at all in the State of California. I think that the state of California is as dysfunctional as you can possibly get.....And when I look at the results of this last election in California, I don't see any reason to change my view that California is fiscally unstable......They cannot continue to do what they have been doing without becoming insolvent...... you're buying the full faith and credit of the State of California when you buy one of these Build-America Bonds........

.....Yes, they get a 35% of the interest cost rebate from the Federal Government, but the principle is on the backs of the taxpayers of the State of California......There is so much uncertainty about how in the world the state is going to meet all of the promises it has made to so many people over the years. Including those who have worked for the state and are eligible for benefit packages for many years to come. Who's going to pay for all that? Investors are worried about that, as they should be......The way people are looking at California right now is, it's basically a debt machine. As a matter of fact, this coming week, they are scheduled to sell another $billion of tax-exempt General Obligation Bonds. And another $100 million of taxable-lease revenue bonds......The investor has legitimate questions now about the long-term solvency of issuers like the State of California." 

VANGUARD GNMA FUND (VFIIX)   Brinker has sold the  the Vanguard Ginnie Mae holdings from  Marketimer  model portfolio III and his  "off-the-books" fixed income portfolio down to 15% in each. On Moneytalk, Brinker has recommended using a "mental stop" for those who are concerned about the fund NAV dropping:

December 12, 2010, Brinker said:  "Now in terms of radio listeners who happen to have bond funds, my recommendation has been very clear that if you have any concerns about net-asset-value volatility, net-asset-value deterioration.....then you need to protect yourself. And the way that I recommend you protect yourself is with what is called a mental stop. And a mental stop is very simple.....You come up with a price on each of your bond fund holdings below which you are not willing to maintain the position, and if that price is published on any given night..... If you see your price then at that point, the next day, you liquidate your position......"

VANGUARD HIGH YIELD BOND FUND (VWEHX)...Moneytalk, August 29, 2010, Brinker said: "High yield bonds have been doing very well. We've included those in our Fixed Income only portfolio on Page 7 of the investment letter each month.    We've included for some time a high yield bond fund in there. And I'll tell you what, even today, the yield on that fund is about 7% taxable.....But we have taken a conservative position where we use that for fixed income only investors..."

Honeybee EC: However,  Bob Brinker took no calls about the drastic net-asset-value drop in the High-Yield Fund during the megabear market.  During that time, I received letters from people asking for advice as to whether to sell or hold,  so I'm sure people were trying to get on the program to talk to Bob  Brinker about it.

VANGUARD TREASURY INFLATION-PROTECTED SECURITIES (VIPSX)  On Moneytalk, Brinker has often talked quite favorably about TIPS and he has told callers who are worried about inflation, that they could get total inflation protection by owning TIPS and I-Bonds.

So based on that, one would have to conclude that Brinker is not worried about inflation because in the January 2011 issue of Marketimer, he sold all holdings of Vanguard Inflation-Protected Securities in the Fixed Income and Balanced Model Portfolios. But the actual reason that he gave was that he believes they are "over-valued based on its extremely low base interest rate of 0.38%."   He now has no recommendations for TIPS or I-Bonds in Marketimer.

May 1, 2011, on Moneytalk, Brinker said he sold all TIPS from model portfolios:

Caller Keith from Peoria asked Brinker if the high price of groceries would increase the rates on Inflation Protected Bonds (TIPS). Brinker said that right now, the Fed is a buyer of Treasury securities -- creating demand by putting in about 75 billion dollars a month (from QE2). This helps to keep yields down. Plus they have become very widely owned which creates demand for them. Brinker said: "Right now, I think that the base rates are too low. And that is why we have eliminated them from our model portfolios in the investment letter. We did that at the beginning of the year."